I am no economist, but the laffer curve measures the amount of tax revenue based on tax levels. Makes sense, right? At some point, people will stop working if taxes are too high, thus decreasing revenues. And if taxes are too low, then less revenue is collected.

However, the application of this principle is for evidence that taxes can be raised, and money will trickle in regardless. This I take issue with, as it is more nuanced.

There is a world of difference between a man who makes $50K saying, "Nope, taxes are too high, I'm out.", and a man working TWO jobs for the same thing.

In both examples, the tax burden is the exact same.However, making $50K at one job and paying X in taxes has a different effect than workng 60 hours a week to make $50K to pay X in taxes, especially if this man is aware of how taxation works.

I really should get a second job, as we could really use the money. However, something about working 20 hours a week, and having no weekend is less appealing to me, knowing full well that about 40% of those earnings are lost to me in taxation.

Now, if I had money in the bank (interest), or investments (dividend), or other ways to make money without expending any real effort (like owning, not managing, a business), that 40% loss sucks, but it doesn't have the same effect as those who work for the money.

I think people who cite the laffer curve overlook this, and don't realize the loss of productivity that may be lost, by those not wanting to work longer.

At 7/3/2014 10:39:44 PM, Citrakayah wrote:Also, you know, we're nowhere remotely close to the point on the Laffer curve where we would start (according to it) losing revenue.

Yes, but people cite the curve as evidence of where the taxation point ought to be, but not realizing that is a huge disincentive to those who earn their money.Passive income, sure.Return on investment (i.e. risk), sure.But not on earned income, especially where extra effort is put in.

I am no economist, but the laffer curve measures the amount of tax revenue based on tax levels. Makes sense, right? At some point, people will stop working if taxes are too high, thus decreasing revenues. And if taxes are too low, then less revenue is collected.

However, the application of this principle is for evidence that taxes can be raised, and money will trickle in regardless. This I take issue with, as it is more nuanced.

There is a world of difference between a man who makes $50K saying, "Nope, taxes are too high, I'm out.", and a man working TWO jobs for the same thing.

In both examples, the tax burden is the exact same.However, making $50K at one job and paying X in taxes has a different effect than workng 60 hours a week to make $50K to pay X in taxes, especially if this man is aware of how taxation works.

I really should get a second job, as we could really use the money. However, something about working 20 hours a week, and having no weekend is less appealing to me, knowing full well that about 40% of those earnings are lost to me in taxation.

Now, if I had money in the bank (interest), or investments (dividend), or other ways to make money without expending any real effort (like owning, not managing, a business), that 40% loss sucks, but it doesn't have the same effect as those who work for the money.

I think people who cite the laffer curve overlook this, and don't realize the loss of productivity that may be lost, by those not wanting to work longer.

Well, I agree there is a point when increases taxes results in less revenue. But, the USA is not close to that point yet.

I think you have a good argument as why capital gains and dividends should be taxed more, and that low paid hourly workers should be taxed less. But, I don't think you have an argument against the Laffer.

I am no economist, but the laffer curve measures the amount of tax revenue based on tax levels. Makes sense, right? At some point, people will stop working if taxes are too high, thus decreasing revenues. And if taxes are too low, then less revenue is collected.

However, the application of this principle is for evidence that taxes can be raised, and money will trickle in regardless. This I take issue with, as it is more nuanced.

There is a world of difference between a man who makes $50K saying, "Nope, taxes are too high, I'm out.", and a man working TWO jobs for the same thing.

In both examples, the tax burden is the exact same.However, making $50K at one job and paying X in taxes has a different effect than workng 60 hours a week to make $50K to pay X in taxes, especially if this man is aware of how taxation works.

I really should get a second job, as we could really use the money. However, something about working 20 hours a week, and having no weekend is less appealing to me, knowing full well that about 40% of those earnings are lost to me in taxation.

Now, if I had money in the bank (interest), or investments (dividend), or other ways to make money without expending any real effort (like owning, not managing, a business), that 40% loss sucks, but it doesn't have the same effect as those who work for the money.

I think people who cite the laffer curve overlook this, and don't realize the loss of productivity that may be lost, by those not wanting to work longer.

Well, I agree there is a point when increases taxes results in less revenue. But, the USA is not close to that point yet.

I think you have a good argument as why capital gains and dividends should be taxed more, and that low paid hourly workers should be taxed less. But, I don't think you have an argument against the Laffer.

My horribly worded point was that it depends on the means of income.If the income is more or less passive (interest, raise at work, opening a second location), it doesn't generate a ton of effort, thus people will assume the risk.But, selling stocks, not as high.Working a second job, not as high.

Outside of necessity, how many people, who work full time making $45K (single, no dependants), would work a second job, knowing their take home pay on every dollar from that second job (extra real effort), is taxed at over 40%?I think it is less than you think, assuming they realize this, and why I don't like people using the Laffer curve as a defense.

At 7/3/2014 10:39:44 PM, Citrakayah wrote:Also, you know, we're nowhere remotely close to the point on the Laffer curve where we would start (according to it) losing revenue.

The Laffer curve does not state where we would lose revenue. Let's say the curve starts at a 0% tax rate and ends at a 100% tax rate. The peak of the curve can be anywhere between those two points, and may differ from economy to economy. Estimations of the point of tax revenue maximization range from as low as 30% to as high as 70% depending on the source.

"Chemical weapons are no different than any other types of weapons."~Lordknukle

I am no economist, but the laffer curve measures the amount of tax revenue based on tax levels. Makes sense, right? At some point, people will stop working if taxes are too high, thus decreasing revenues. And if taxes are too low, then less revenue is collected.

However, the application of this principle is for evidence that taxes can be raised, and money will trickle in regardless. This I take issue with, as it is more nuanced.

There is a world of difference between a man who makes $50K saying, "Nope, taxes are too high, I'm out.", and a man working TWO jobs for the same thing.

In both examples, the tax burden is the exact same.However, making $50K at one job and paying X in taxes has a different effect than workng 60 hours a week to make $50K to pay X in taxes, especially if this man is aware of how taxation works.

I really should get a second job, as we could really use the money. However, something about working 20 hours a week, and having no weekend is less appealing to me, knowing full well that about 40% of those earnings are lost to me in taxation.

Now, if I had money in the bank (interest), or investments (dividend), or other ways to make money without expending any real effort (like owning, not managing, a business), that 40% loss sucks, but it doesn't have the same effect as those who work for the money.

I think people who cite the laffer curve overlook this, and don't realize the loss of productivity that may be lost, by those not wanting to work longer.

The labor supply is based on the worker's preference of income over leisure. The higher the tax rate, the lower the worker is paid, and thus the greater his preference towards leisure over labor. The higher the tax rate, the lower the take home pay. If the take home pay is too low to make the work worthwhile, people will stop working. It is not a matter of "am I still making a profit", it is a matter of "am I still making a profit that is worth my time and effort".

Different jobs have different rates of pay, because the rate of pay depends on the supply and demand for the specific labor skill sets. If person A is making $50k a year with 40 hour work weeks, and person B is making $50k a year with 60 hour work weeks, person A either has rarer knowledge skills and abilities (KSAs) than person B, or there is a greater demand for the KSAs of person A than those of person B. Because person A's trade requires more valuable KSAs than person B's , person A is paid more than person B. If taxes cause both parties to earn $20k after taxes as opposed to $50k, person B would have to cut more hours than person A to make his labor worthwhile, because person B has to work more hours to earn the same amount of income as person A. Person A would not continue to work the same amount, simply because they are paid a subjectively higher rate than person B, because the two jobs are not equivalent to one another.

"Chemical weapons are no different than any other types of weapons."~Lordknukle

I am no economist, but the laffer curve measures the amount of tax revenue based on tax levels. Makes sense, right? At some point, people will stop working if taxes are too high, thus decreasing revenues. And if taxes are too low, then less revenue is collected.

However, the application of this principle is for evidence that taxes can be raised, and money will trickle in regardless. This I take issue with, as it is more nuanced.

There is a world of difference between a man who makes $50K saying, "Nope, taxes are too high, I'm out.", and a man working TWO jobs for the same thing.

In both examples, the tax burden is the exact same.However, making $50K at one job and paying X in taxes has a different effect than workng 60 hours a week to make $50K to pay X in taxes, especially if this man is aware of how taxation works.

I really should get a second job, as we could really use the money. However, something about working 20 hours a week, and having no weekend is less appealing to me, knowing full well that about 40% of those earnings are lost to me in taxation.

Now, if I had money in the bank (interest), or investments (dividend), or other ways to make money without expending any real effort (like owning, not managing, a business), that 40% loss sucks, but it doesn't have the same effect as those who work for the money.

I think people who cite the laffer curve overlook this, and don't realize the loss of productivity that may be lost, by those not wanting to work longer.

The labor supply is based on the worker's preference of income over leisure. The higher the tax rate, the lower the worker is paid, and thus the greater his preference towards leisure over labor. The higher the tax rate, the lower the take home pay. If the take home pay is too low to make the work worthwhile, people will stop working. It is not a matter of "am I still making a profit", it is a matter of "am I still making a profit that is worth my time and effort".

Different jobs have different rates of pay, because the rate of pay depends on the supply and demand for the specific labor skill sets. If person A is making $50k a year with 40 hour work weeks, and person B is making $50k a year with 60 hour work weeks, person A either has rarer knowledge skills and abilities (KSAs) than person B, or there is a greater demand for the KSAs of person A than those of person B. Because person A's trade requires more valuable KSAs than person B's , person A is paid more than person B. If taxes cause both parties to earn $20k after taxes as opposed to $50k, person B would have to cut more hours than person A to make his labor worthwhile, because person B has to work more hours to earn the same amount of income as person A. Person A would not continue to work the same amount, simply because they are paid a subjectively higher rate than person B, because the two jobs are not equivalent to one another.

It is also interesting to look at the statistics of economic growth when taxes were high vs. low. Keep in mind the average growth in real GDP from post-WW2 to pre-9/11 was 3.16%, but this can largely be attributed to later years when tax rates were lower. Here are presidents with top income tax rates:

Truman and Eisenhower are actually far below the average. Their tax rates were outrageous. When taxes were cut in the 1960s more capital came in and that gave us great prosperity. Nixon, Ford, and Carter kind of ruined it though as they were not business friendly presidents. Reagan saw great growth too. Bush's higher rate seemed to cause really lower growth and only Clinton saw great economic growth after raising taxes and then again he had to compromise with a Republican Congress for most of his tenure.

It is also interesting to look at the statistics of economic growth when taxes were high vs. low. Keep in mind the average growth in real GDP from post-WW2 to pre-9/11 was 3.16%, but this can largely be attributed to later years when tax rates were lower. Here are presidents with top income tax rates:

Truman and Eisenhower are actually far below the average. Their tax rates were outrageous. When taxes were cut in the 1960s more capital came in and that gave us great prosperity. Nixon, Ford, and Carter kind of ruined it though as they were not business friendly presidents. Reagan saw great growth too. Bush's higher rate seemed to cause really lower growth and only Clinton saw great economic growth after raising taxes and then again he had to compromise with a Republican Congress for most of his tenure.

For the record, taxes under Reagan varied from 70%, 50%, 38.5%, and 28% only in his last year of office (1988-1990).The top tax rate was 50% for five of his eight years in office.http://taxfoundation.org...

It is also interesting to look at the statistics of economic growth when taxes were high vs. low. Keep in mind the average growth in real GDP from post-WW2 to pre-9/11 was 3.16%, but this can largely be attributed to later years when tax rates were lower. Here are presidents with top income tax rates:

Truman and Eisenhower are actually far below the average. Their tax rates were outrageous. When taxes were cut in the 1960s more capital came in and that gave us great prosperity. Nixon, Ford, and Carter kind of ruined it though as they were not business friendly presidents. Reagan saw great growth too. Bush's higher rate seemed to cause really lower growth and only Clinton saw great economic growth after raising taxes and then again he had to compromise with a Republican Congress for most of his tenure.

For the record, taxes under Reagan varied from 70%, 50%, 38.5%, and 28% only in his last year of office (1988-1990).The top tax rate was 50% for five of his eight years in office.http://taxfoundation.org...

I know, but I'm recording it by the lowest rate they went. Either way, taxes were still being dramatically reduced more than any other previous president under his two terms. Some people complain that he did raise taxes at points and this is true, but his tax cuts were far larger than his tax increases and this was especially true for income and corporate taxes, the two main rates he slashed. Even capital gains taxes, when they were cut in 1981 but raised again in 1986, didn't really increase the rate by that much of the pre-1981 rate, making his rate more neutral rather than an increase or a cut.

"The chief business of the American people is business." - Calvin Coolidge

It is also interesting to look at the statistics of economic growth when taxes were high vs. low. Keep in mind the average growth in real GDP from post-WW2 to pre-9/11 was 3.16%, but this can largely be attributed to later years when tax rates were lower. Here are presidents with top income tax rates:

Truman and Eisenhower are actually far below the average. Their tax rates were outrageous. When taxes were cut in the 1960s more capital came in and that gave us great prosperity. Nixon, Ford, and Carter kind of ruined it though as they were not business friendly presidents. Reagan saw great growth too. Bush's higher rate seemed to cause really lower growth and only Clinton saw great economic growth after raising taxes and then again he had to compromise with a Republican Congress for most of his tenure.

For the record, taxes under Reagan varied from 70%, 50%, 38.5%, and 28% only in his last year of office (1988-1990).The top tax rate was 50% for five of his eight years in office.http://taxfoundation.org...

I know, but I'm recording it by the lowest rate they went. Either way, taxes were still being dramatically reduced more than any other previous president under his two terms. Some people complain that he did raise taxes at points and this is true, but his tax cuts were far larger than his tax increases and this was especially true for income and corporate taxes, the two main rates he slashed. Even capital gains taxes, when they were cut in 1981 but raised again in 1986, didn't really increase the rate by that much of the pre-1981 rate, making his rate more neutral rather than an increase or a cut.

Reagan also borrowed a lot of money to help compensate for the revenue lost from these tax cuts.

It is also interesting to look at the statistics of economic growth when taxes were high vs. low. Keep in mind the average growth in real GDP from post-WW2 to pre-9/11 was 3.16%, but this can largely be attributed to later years when tax rates were lower. Here are presidents with top income tax rates:

Truman and Eisenhower are actually far below the average. Their tax rates were outrageous. When taxes were cut in the 1960s more capital came in and that gave us great prosperity. Nixon, Ford, and Carter kind of ruined it though as they were not business friendly presidents. Reagan saw great growth too. Bush's higher rate seemed to cause really lower growth and only Clinton saw great economic growth after raising taxes and then again he had to compromise with a Republican Congress for most of his tenure.

For the record, taxes under Reagan varied from 70%, 50%, 38.5%, and 28% only in his last year of office (1988-1990).The top tax rate was 50% for five of his eight years in office.http://taxfoundation.org...

I know, but I'm recording it by the lowest rate they went. Either way, taxes were still being dramatically reduced more than any other previous president under his two terms. Some people complain that he did raise taxes at points and this is true, but his tax cuts were far larger than his tax increases and this was especially true for income and corporate taxes, the two main rates he slashed. Even capital gains taxes, when they were cut in 1981 but raised again in 1986, didn't really increase the rate by that much of the pre-1981 rate, making his rate more neutral rather than an increase or a cut.

Reagan also borrowed a lot of money to help compensate for the revenue lost from these tax cuts.

Overall though he was borrowing money for the Cold War, not the economy which was revived from the tax rate reductions. As should happen, presidents should go into debt if required in order to spend what money needed on the military to win the war. Without Reagan, there would not be a major contribution to accelerate the fall of the USSR.

However, I must say there was not much revenue lost from the tax cuts, but because if the recession. As you see here revenue still grew at a good pace as it should under the Laffer curve. http://www.usgovernmentrevenue.com...

The first three years were the recession years and in recession revenue will go down no matter what, but after that revenue skyrocketed.

"The chief business of the American people is business." - Calvin Coolidge

It is also interesting to look at the statistics of economic growth when taxes were high vs. low. Keep in mind the average growth in real GDP from post-WW2 to pre-9/11 was 3.16%, but this can largely be attributed to later years when tax rates were lower. Here are presidents with top income tax rates:

Truman and Eisenhower are actually far below the average. Their tax rates were outrageous. When taxes were cut in the 1960s more capital came in and that gave us great prosperity. Nixon, Ford, and Carter kind of ruined it though as they were not business friendly presidents. Reagan saw great growth too. Bush's higher rate seemed to cause really lower growth and only Clinton saw great economic growth after raising taxes and then again he had to compromise with a Republican Congress for most of his tenure.

For the record, taxes under Reagan varied from 70%, 50%, 38.5%, and 28% only in his last year of office (1988-1990).The top tax rate was 50% for five of his eight years in office.http://taxfoundation.org...

I know, but I'm recording it by the lowest rate they went. Either way, taxes were still being dramatically reduced more than any other previous president under his two terms. Some people complain that he did raise taxes at points and this is true, but his tax cuts were far larger than his tax increases and this was especially true for income and corporate taxes, the two main rates he slashed. Even capital gains taxes, when they were cut in 1981 but raised again in 1986, didn't really increase the rate by that much of the pre-1981 rate, making his rate more neutral rather than an increase or a cut.

Reagan also borrowed a lot of money to help compensate for the revenue lost from these tax cuts.

Overall though he was borrowing money for the Cold War, not the economy which was revived from the tax rate reductions. As should happen, presidents should go into debt if required in order to spend what money needed on the military to win the war. Without Reagan, there would not be a major contribution to accelerate the fall of the USSR.

All money borrowed and spent affects (is for) the economy. The economy did well because of deficit spending. Reagan would not be able to cut taxes if he did not get the lost revenue from the tax cuts from borrowing.

However, I must say there was not much revenue lost from the tax cuts, but because if the recession. As you see here revenue still grew at a good pace as it should under the Laffer curve. http://www.usgovernmentrevenue.com...

The first three years were the recession years and in recession revenue will go down no matter what, but after that revenue skyrocketed.

If you extend the graph you will see that tax revenue has always been growing, throught the 1990s into today. Tax revenue has been going up for all Presidents, so it is meaningless to prove anything.

I think because so any things affect GDP that conclusions cannot be drawn from just looking at tax rates and GDP.

It is also interesting to look at the statistics of economic growth when taxes were high vs. low. Keep in mind the average growth in real GDP from post-WW2 to pre-9/11 was 3.16%, but this can largely be attributed to later years when tax rates were lower. Here are presidents with top income tax rates:

Truman and Eisenhower are actually far below the average. Their tax rates were outrageous. When taxes were cut in the 1960s more capital came in and that gave us great prosperity. Nixon, Ford, and Carter kind of ruined it though as they were not business friendly presidents. Reagan saw great growth too. Bush's higher rate seemed to cause really lower growth and only Clinton saw great economic growth after raising taxes and then again he had to compromise with a Republican Congress for most of his tenure.

For the record, taxes under Reagan varied from 70%, 50%, 38.5%, and 28% only in his last year of office (1988-1990).The top tax rate was 50% for five of his eight years in office.http://taxfoundation.org...

I know, but I'm recording it by the lowest rate they went. Either way, taxes were still being dramatically reduced more than any other previous president under his two terms. Some people complain that he did raise taxes at points and this is true, but his tax cuts were far larger than his tax increases and this was especially true for income and corporate taxes, the two main rates he slashed. Even capital gains taxes, when they were cut in 1981 but raised again in 1986, didn't really increase the rate by that much of the pre-1981 rate, making his rate more neutral rather than an increase or a cut.

Reagan also borrowed a lot of money to help compensate for the revenue lost from these tax cuts.

Overall though he was borrowing money for the Cold War, not the economy which was revived from the tax rate reductions. As should happen, presidents should go into debt if required in order to spend what money needed on the military to win the war. Without Reagan, there would not be a major contribution to accelerate the fall of the USSR.

All money borrowed and spent affects (is for) the economy. The economy did well because of deficit spending. Reagan would not be able to cut taxes if he did not get the lost revenue from the tax cuts from borrowing.

This is not true deficits alone have occurred in both times of economic depression and boom. There was a deficit during the Carter years and the economy got worse, but there was a deficit and later surplus in the Clinton years and the economy got better. The matter is what economic policies are put in place. Reagan used supply-side economic while the Fed cut the money supply and it worked. Keep in kind unemployment went from a peak of 11% to 5% when he left and if you look specifically at when the tax cuts were put in effect and the unemployment rates, then you realize it was primarily the result of tax cuts.

However, I must say there was not much revenue lost from the tax cuts, but because if the recession. As you see here revenue still grew at a good pace as it should under the Laffer curve. http://www.usgovernmentrevenue.com...

The first three years were the recession years and in recession revenue will go down no matter what, but after that revenue skyrocketed.

If you extend the graph you will see that tax revenue has always been growing, throught the 1990s into today. Tax revenue has been going up for all Presidents, so it is meaningless to prove anything.

I think because so any things affect GDP that conclusions cannot be drawn from just looking at tax rates and GDP.

My point though still stands in defense of the Laffer curve. Lower rates still generate revenue increases. The only reason there was such a large deficit that primarily occurred in the middle of Reagan's term was because of military spending, domestic spending grew as slow as a turtle and actually declined as a % of GDP.

"The chief business of the American people is business." - Calvin Coolidge